Guide for property owners: Lock out, eviction and lease termination
Property owners aren't always aware of the requirements and complications of terminating a lease early.
NOTE: On 14 July 2021, the NSW Government enacted the Retail and Other Commercial Leases (COVID-19) Regulation 2021 (the Regulation). Under the Regulation, landlords will be prevented from taking any prescribed action against an tenant impacted for a breach of the lease occurring during the prescribed period, unless they have attempted mediation. For more information, see Commercial leases and COVID-19 FAQs.
Here are some questions property owners should considering before locking out, evicting or terminating a lease, including why mediation might be a worthwhile first approach to resolve leasing disputes with your tenant.
I’m considering locking out, evicting or issuing a termination notice to my lessee. What should I be aware of?
There are a couple of scenarios to consider:
- Is the eviction because you are owed rent?
Falling behind on the rent may be considered a breach of your commercial or retail lease and you may be able to exercise a “right to re-occupy”, potentially without providing any notice to the tenant. Locking out, or any form of eviction without a court order, can be risky.
Before you act, check your lease. Is there a grace period, which would allow the lessee a certain number of days of arrears before the lessor can take any action? Also, check if the COVID-19 Lease Regulation applies to your situation. Look carefully at risks. For example, if you exercise your right to reoccupy with incorrect calculations and the lessee’s business is affected, you may need to pay compensation to the lessee.
Another complication following a lease termination is your obligations for the care of property the lessee has left in the premises, which may be the property of staff, customers, or other companies leasing the equipment to the business. Learn more about collection of belongings.
- Are there reasons the tenant can’t pay the rent you should consider?
If the lessee’s business is just going through a rough patch, from which they are likely to recover, the lessor may wish to consider negotiating short-term rent adjustments instead of terminating. If the lessee’s business hasn’t been successful, consider negotiating an orderly winding up and exit. A negotiated outcome will reduce risk and be more cost-effective in most cases. If the tenant’s business has been affected by COVID19, be aware of the protections extended to tenants under the COVID-19 Lease Regulations
- Are there other reasons for the eviction?
In situations where the contracted lease term has expired and the lessee has not taken up an option to extend the term or renewed the lease, the lessee may be trading on a "hold-over" or month-to-month basis. In this case, you may wish to reoccupy the premises. If this is the case, we suggest you check your lease contract for the required notice period that must be given to the lessee. Learn more about holdover leases.
A lessee may like to stay on for longer, and you may consider negotiating with the lessee regarding terms of an extension.
Can the tenant get relief against forfeiture?
A tenant who has been locked out can seek urgent “relief against forfeiture” from a court or tribunal. This means that a court may allow the tenant back in for a short period and under certain conditions. The lessor may consider speaking to a lawyer about defending such an application by the lessee.
10 questions to consider:
If the lessee is in arrears, what does the lease say about arrears? How many days behind are they?
How long can I afford to be without rent?
What is the likelihood of recovering any debt owed to me if the lessee is locked out?
What is the lessee’s ability to pay any outstanding rent?
If the lessee is locked out, how likely am I to be able to quickly relet the property?
How is the lessee’s business going – are they still trading?
Will the bond, bank guarantee or any other security cover your losses?
Have I taken action to minimise my losses?
What responsibilities do I have for the property (belongings, equipment, fitout) in the shop premises, including any things owned by a third party?
What else is at stake for me?
You can contact our team to discuss some strategic options that you may wish to consider before trying to lock out a lessee.